Millennials in this age have discovered many ways to secure their financial stability. The idea is not only to live a luxurious life but also to provide for your loved ones in their dire times. A term insurance plan is a way of protecting the financial security of your loved ones.

What is term insurance?

Term insurance is a form of life insurance policy that is available for affordable premium rates. These policies are available for both short and long terms from 10 to 99 years.

With a suitable policy, you can choose the minimum sum assured in term insurance that would meet the financial needs of your loved ones in the event of your untimely demise. There are different types of term insurance plans, and you can select the one that most benefits you and your loved ones.

  1. Increasing term insurance to beat the rate of inflation.
  2. Decreasing term insurance to reduce liabilities gradually and steadily.
  3. Term insurance with a return of premium can serve as a savings plan if you survive the policy tenure.
  4. Convertible term insurance to secure your whole life with a suitable policy.
  5. Level-term insurance that allows your loved ones to plan their finances with an accurate idea about what to expect.

You can choose the type of term insurance based on the benefits that you and your loved one’s need.

How do you calculate the minimum sum assured in term insurance?

Calculating the minimum sum assured in term insurance that would sufficiently meet the financial needs of your loved ones is tricky. You will need to consider the following factors to make an informed decision:

  1. Your annual income versus expenditure – This is the first and foremost factor that affects how the sum assured is utilised by your loved ones in the event of your demise. You can chart your Income versus expenditure to accurately estimate the amount needed for running the household.
    If the expenses in the household cross the income limit and are directed towards credit, then you need a higher sum assured to meet the actual financial needs of your dependents. You must also factor in basic necessities such as rent, utilities, grocery, etc. as well as other necessary expenses such as car insurance, home insurance, health insurance, etc.
  2. The possible rate of inflation – The Indian rupee is subjected to inflation every year. However, the rate of inflation can vary, thus making it hard to anticipate. You must choose the minimum sum assured in term insurance with a margin for inflation. Over the years, as the rate of inflation diminishes the value of the Indian rupee, the marginal increase in expenses will be factored into the minimum sum assured in term insurance. An increasing term insurance plan is suitable to meet the rate of inflation.
  3. Outstanding debts and liabilities – You must take a hard look at the debts and liabilities That you and your dependents currently have. The minimum sum assured in term insurance must also factor in The expenses towards paying back these debts and liabilities.
    A decreasing term insurance plan allows you to repay debts, mortgages, loans, etc. and reduce the load of liabilities on your loved ones. They can utilise the minimum sum assured in term insurance that they receive as death benefits to plan their future finances.
  4. Future goals of dependents – You must also consider the future goals of your loved ones and the finances needed to support them. For instance, if you have children, then the minimum sum assured in term insurance will have to cover the expenses of education as well as a fund for various life stages. Similarly, if your dependents are older, then the minimum sum assured in term insurance will have to suffice to pay for their golden years.
  5. Need for additional riders – When purchasing a term insurance plan, you must also consider the possibilities of critical illnesses and accidental death. Critical illnesses and accidents may befall at any time. Therefore, having subsequent cover for critical illnesses and accidental death with your term insurance plan is a suitable option to explore. It can help your loved one’s deal with the added expense of treatments and increase the minimum sum assured in term insurance.

Considering the factors mentioned above, you can estimate an appropriate minimum sum assured in term insurance. The amount must be sufficient to support your loved ones through tough financial times. It must also help them navigate life stages with ease.

Conclusion

Term insurance is a means of supporting your loved ones even after leaving the earthly plane. While money may not help them deal with the loss of someone they love, it can help reduce the stress of future financial planning and help them achieve their dreams. This is a major reason why millennials prefer term insurance. It assures that even in the great beyond, they have the satisfaction of knowing that their loved ones are well taken care of.